Yes, an owner of a French leaseback should be informed before the sale of the potential obligation to pay an eviction indemnity (indemnité d’éviction) if they refuse to renew the lease. French leaseback properties are typically governed by a commercial lease under article L. 145-1 et seq. of the French Commercial Code.
Key Legal Considerations
1. Eviction Indemnity in Commercial Leases
Under Article L. 145-14 of the French Commercial Code, a tenant operating a business (fonds de commerce) in leased premises has a right to renewal of the lease.
If the landlord refuses to renew without a valid reason (e.g., serious breach by the tenant or a legitimate reason such as demolition or major reconstruction), they must pay an eviction indemnity compensating the tenant for the loss of their business.
2. Obligation to Inform the Buyer
Under article 1112-1 of the French Civil Code, the seller has a pre-contractual duty to disclose information that is essential for the buyer’s consent.
If the property is sold subject to a commercial lease, the risk of an eviction indemnity is a significant financial liability and should be disclosed.
Failure to inform the buyer could lead to a claim for hidden defects (vice caché) or pre-contractual misrepresentation.
3. Standard Practice in Leaseback Sales
In most VEFA (Vente en l’État Futur d’Achèvement) leaseback schemes, the developer initially signs a 9- or 12-year commercial lease with an operator.
When an individual resells their leaseback property, the buyer should be fully informed of the lease terms, including renewal obligations and eviction indemnity risks.
Notary contracts typically include a clause referring to the commercial lease and the associated risks, but the seller should ensure the buyer has full knowledge of these obligations.
Potential Consequences if the Seller Fails to Disclose:
Claim for annulment of the sale due to error (erreur) or fraud (dol).
Damages for pre-contractual misrepresentation.
Possible indemnification of the buyer if they suffer a financial loss due to undisclosed obligations.
Best Practices for an Owner Selling a Leaseback Property :
Provide the commercial lease agreement to the buyer before the sale.
Include clear wording in the notarial deed (acte de vente) about the potential obligation to pay an eviction indemnity.
Seek legal advice to ensure compliance with disclosure obligations.
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